Last time in this space, we started to look at some of the intertwining nature of health care and taxes. Hopefully we are not jinxing ourselves by continuing this into a second column, and the health of both writer and reader will remain sound.
We mentioned last time about shopping for health insurance through the government marketplace, and I am sure that many of you are happy that you do not have to deal with such things. It can become a necessity for those who are self-employed, however, but thankfully for them, it can come with a tax deduction.
Yes, if you are self-employed, the insurance premiums you pay for yourself, your spouse and your dependents are a deduction. This can be a hefty one, as well, for that insurance bill can run hundreds of dollars a month.
Other premiums that could end up being deductible are ones for long-term care insurance. This one isn’t as simple, however – and come on, this was a tax article, it would be impossible for things to have remained simple throughout the entire article.
First, long-term care insurance gets put together with other health care expenses as an itemized deduction. And remember, as stated in our last piece, those expenses must exceed 10 percent of your adjusted gross income to qualify as a deduction. Now that sounds like a deterrent, but these plans can be pricey, so they would help you reach that threshold.
Furthermore, there is a cap on how much of these deductions can be deducted based on your age. Essentially, the younger you are, the lower your limit. As an added down-the-line tax benefit, any reimbursements paid out of these plans come tax free. Also, payments can be made from a health savings account.
Now for those of you unfamiliar with health savings accounts, we will look at those now to close out our around-the-doctor’s office blitz. But, of course, things are getting a little more complicated yet again.
A health savings account is a tax-advantaged medical savings account. This means that the funds contributed into the account are not subject to federal income tax when they are deposited.
This is clearly a bonus and gives you a little extra to spend on medical expenses, but one is only eligible to have such an account if you are enrolled in a high-deductible health plan. Without getting into exact numbers, these are plans with lower premiums and higher deductibles, meaning those enrolled could really benefit from having an extra reserve of tax-free money from which to pay medical expenses.
Importantly, HSA funds roll over and accumulate year to year, so if you put some money in for this year and did not use it, do not worry, the money is still yours. This can make it a wonderful means to save for future health care expenses and build an account to take care of them without paying any taxes on the money.
If you have any questions about any of these situations and how you could leverage them to your best advantage, as always, we are here to help. And we assure you that our help will extend beyond just our wishes for good health.
